DP15927 Welfare Effects of Property Taxation
We investigate the welfare implications of property taxation. We
develop a sufficient statistics approach within a spatial equilibrium framework that
accounts for the distributional effects of tax changes at the household level. We show
that equity effects are driven by price adjustments in the housing and labor markets,
while efficiency enters via changes in public goods. Using microdata and exploiting
5,500 municipal property tax changes in Germany, where assessed housing values
remain constant, we find that 83 percent of the tax burden is passed through to
rental prices, with modest labor market effects. Simulations of the welfare effects
of property taxes reveal that the price effects of property tax hikes are regressive.
Accounting for local public goods can partially neutralize the distributional effects
of the tax if public good preferences are high.
